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June 9, 2024 - 5:40pm
In recent years, housing has emerged as arguably the key driver of class divisions in the Western world. For decades, working- and middle-class people could dream reasonably about buying a house, providing security for their families and a financial nest egg for themselves, but that dream is now slowly dying. Until the Nineties, house prices generally rose at about the same rate as income, and homeownership became more widespread, with the median multiple in most areas around three. But since then, prices “have been three times faster than household median income over the last two decades”, according to the OECD.
This has been further confirmed by a new Demographia International Housing Affordability study which found that, despite claims that they reduce prices, higher urban population densities are associated with worse housing affordability in the United States, Australia and Britain. Many of these changes are due to urban containment or compact city strategies that seek to limit development in already urbanised areas and promote urban density — an approach widely popular with progressive activists.
Unfortunately, many of the drivers behind these trends are political: the embrace of pro-density policies has been commonplace in both the Barack Obama and Joe Biden administrations, as well as in progressive bastions such as California. Indeed, there are even attempts by the likes of Biden to transfer inner-city populations to suburbs, who may be less than welcome when they get there. Add to that the problem of high interest rates, the product of Washington’s extreme profligacy, and even more people are being driven out of the market.
Those hurt most by these developments are the new entrants to markets, such as minorities — who now account for virtually all growth in suburban areas — and Millennials. According to US Census Bureau data, the rate of homeownership among young adults at ages 25–34 was 45.4% for Generation X, but dropped to 37% for Millennials — even though nearly three in five see homeownership as an essential part of the American dream. It should be no surprise, then, that Biden’s drop in support among young people largely lies with the diminishing prospect for upward mobility and home ownership.
But this is hardly just an American phenomenon. In the UK, the homeownership rate has plunged below that of 1985. And in Australia, the 2021 homeownership rate among Australians in their mid-20s to mid-30s will be lower than in the 1947 census.
Once, the Democratic Party embraced the idea of expanding home ownership. After all, it was Franklin Roosevelt who suggested that “a nation of homeowners, of people who own a real share in their land, is unconquerable.”
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SubscribeIt’s fair to blame Biden, and all western leaders, for the insane spending and lockdowns during Covid, which caused supply chain problems and inflation. This sparked higher interest rates, which has made mortgages too expensive for many people. Open borders across the west have also created a surge in housing demand, which has outstripped our ability to build.
But the housing crisis is complex. Much of the blame can also be pointed at municipalities. Across the west, municipalities have adopted regulations and restrictions that have handcuffed developers. They are restricted in what they can build and where they can build.
We need strong leaders who can tackle the demand problem by reducing immigration, and lean on municipalities to reduce the many regulations that restrict supply. We also need strong leaders to take a chainsaw to govt spending so they can reduce taxes and inflation, and create economic conditions that favour growth.
Jim, I think that it was more the cheap money (suppressed interest rates) that drove up house prices than the subsequent rise in interest rates – which is only a reversion to the norm.
Governments across the West have followed deliberate policies of inflating house prices for over 30 years. Inflating money supply, increasing demand, limiting supply, increasing energy prices (increases the cost of everything else including building), over-regulating new buildings. They’ve followed policies in each area to make house prices more expensive. This isn’t uniquely a “progressive” thing (whatever that term means – not at all what is says on the tin for me). The progressives have made matters worse by deciding that the welfare of new citizens is to be ranked higher than that of existing citizens and that affordable housing for the majority of their citizens doesn’t matter (or matter enough to act on it).
Excellent points. This isn’t new.
I think you’re falling into the left’s trap of memory-holing people into forgetting who drives big State policies. The Progressive Left uses the State to drive radical change. The Progressive Right uses the market. When a market solution fails, the failure is absorbed by the risk taker. When a State solution fails, the cost is absorbed by the public.
One way, Statists have gotten around this PR problem is through Public-Private Partnerships. Contracting a private firm to do the State’s job. The private firm gets government money and the government agrees to absorb the risk of failure. This allows the State to deflect blame onto the private sector. This is the area where alot of Establishment Conservatives have participated. This participation has provided incalculable political benefits for the Left to avoid blame.
But the Left mostly operates through expanded public benefits. Once the Left has established a benefit or welfare policy, it is almost impossible for future Conservative politicians to retract the benefit or allow it to expire without being accused of wanting to harm the vulnerable. So the spending binge continues. The benefit promoted by Progressive Leftists drives the policy but the PR blame is ultimately shared.
“When a market solution fails, the failure is absorbed by the risk taker.”
In theory – in reality we have had Bush’s EESA, in amongst numerous counts of crony capitalism.
“Reagan took the deficit from $70 billion to $175 billion. Bush 41 took it to $300 billion. Clinton got it to zero. Bush 43 took it from zero to $1.2 trillion. Obama halved it to $600 billion. Trump’s got it back to a trillion.”
Deficits and debt are not the same thing. Many countries intentionally run a trade deficit because more cheap imports keeps down the price of goods (lower inflation).
I know. However, both points I mentioned are still quite a challenge to the binary idea that the right is fiscally responsible, and the left are irresponsible spenders.
That’s because the Right can’t do what is good for the country long term and still win elections. For instance, Social Security retirement is an unsustainable pyramid scheme indexed to inflation. Everybody who understands economics knows that and yet that argument can’t be made. So the Right just nibbles around the edges with minor cuts.
Once you start giving people things out of the public trough they can’t be revoked without severe political cost. It’s how every empire collapses and is well charted in the Tytler Cycle. Nobody on the Left or Center would even consider taking on the argument.
Great post. You do have to wonder if anyone who has had any influence on house prices has ever really thought through where that ends, or is it just short-term pumping all the way with no thought of the future.
I should’ve learnt by now, but it still amazes me every time a political party devizes yet another scheme to boost the housing market.
Something I forgot to add here – government’s role in tilting the playing field in favour of property “investment” rather than actual investment (in businesses via stock investment) through its tax policies. Higher taxes on pensions (earned wealth) and lower ones on housing gains (unearned wealth). We have Gordon Brown – the “prince of fairness” in his own mind – to thank for much of that.
You seem to have forgotten that Trump was the President for the first year of Covid. He, and Republicans in Congress, approved the massive spending to help millions of Americans who lost jobs. The vaccines were possible because Trump gave tens of billions of dollars to pharmaceutical companies. The lockdowns began under Trump. Quit blaming Biden for the policies started during Trump’s administration.
The cost of owning a home has changed radically over my lifetime (oldish now). I think that the key driver was in the 1980’s with an opening of the financial markets (deregulation). Prior to this in the UK it was normal to save with a building society for a number of years before being offered a mortgage from that same society. After the deregulation the money men (pretty exclusively men in those days) realised that they could make a killing.
It became the norm for two fully working people in a relationship to be needed to fund the purchase. Income multiples shot up, for a period the deposit amount could be reduced and reduced. House prices rose and rose (minor blip around 1989/1993), the cost of a mortgage went up and up. The money men made more money. People started to have to pay a much higher part of their income on accommodation. For many, many years this has been possible by keeping other things to buy cheaper. Food as a %’ge of income has really gone down over the past 50/60/70 years.
In my view this is not a so called progressives issue, perhaps the politicians of all types were sold on the idea of “making money”, or persuaded by the money people that all this was for the best. It is, in my view, a symptom of the dominance of the financial markets over all aspects of life and something that no politician can push against and survive. It is global. It is a disaster for far too many people in most developed countries. The rise of living standards seen after WW11 is well and truly over. The winners the Financial Market, the losers pretty much everyone else.
Totally agree. This isn’t an issue to be dumped on progressives.
No, it’s very much the neoliberals, central bankers etc.
Oh really? Funny how house prices soared at the same time mass immigration in perpetuity was imposed on us all.
Great comment. I’d just like to expand on the inflation aspect – the cost of houses (and rent) are not adequately included in the inflation measures, so as the cost of food etc has come down interest rates have been set lower than they would’ve been if housing had been adequately included, stimulating growth.
Has this been deliberate? I don’t know, but I do know there’s not a lot of point having cheaper broccoli if you end up not being able to afford a house, with all the impact that has on your financial well-being.
It was very much deliberate. It was the Ponzi scheme that won the next election for every PM since and including Thatcher.
In the UK it was done quite deliberately. Gordon Brown removed housing costs as a factor in interest rate policy in 2004 because he wanted to stimulate a housing boom in advance of the 2005 election. To my knowledge it hasn’t been re-instated. This is why property owners still get richer as the country gets poorer. New New Labour have already pledged to do nothing about it.
Spot on, with just one amendment. The break up of traditional family roles – due to progressivism/feminism – provided a significant extra source of cash with which to pump prices even more.
Alot of people think it’s “divisive” to blame Progressives for inflation but inflationary policies are the hallmark of idealist, utopian philosophies. The policies produce a Cobra Effect of unintended consequences. They increase the role of the State and then open up new problems that wouldn’t exist but for State intervention.
The State not only spends more to produce an intended outcome but agrees to become a surety for private companies that promote State policies. In other words, they force private companies to extend credit to people that can’t afford something and then when theres a default, it is the State and not the private firm that eats the cost.
You see this in housing markets and now the auto industry and student loans to name a few. The worst part is that the State’s failures justify more bureacracy to fix the problems the initial policies created. Its a system that rewards failure. The rare success stories are highlighted as proof of the programs worth and the bureacracy piles up as it tries to remediate past failures only to create new problems that create a need for “more resources.”
A lot of current inflation results from COVID-era governments squandering money hand-over-fist.
Yeah, housing is where it is falling apart. Quietly working people live with their parents doing everything right and get taken for granted. Meanwhile ” progressives ” and medis types pudh for social housing and we politicise and socialisebthe housing supply. Everyone plays victim. This is the present. But maybe bitcoin can fix this. Save in a money harder than property ?
Yeah, good plan. Don’t buy somewhere to live. Better to invest in a “smoke-and-mirrors” fake “asset” created by crooks, and largely managed by crooks.
You have it backwards my friend. But most people do in fairness. Bitcoin is at least an effort to automate the money supply as money printing is the root cause of so many problems including housing price inflation. Id honestly encourage you to keep an open mind. I honestly dont know if bitcoin will continue to work but i wouldnt dismiss it either. It is at the least, a very interesting idea
I wrote about this a few weeks ago, more from a Canadian perspective, where we have even more space to make livable – and it’s even sillier to stick rigidly to the idea that new development must cram people into existing infrastructure as much as possible.
I don’t think this is a progressive issue per se, nor is density inherently bad. The real problem is that most development across cities in the West has been driven too much by what will make people money over the last few decades, and too little by what people enjoy living in.
That’s why I believe we need to rethink our approach to urban planning and prioritize creating spaces that enhance quality of life wherever we can, instead of thinking only cities can be vibrant and explorable – extending gentle urbanity, essentially, instead of focusing too much on concentrating density in urban areas.
Throughout most if the 20th century the ratio of house prices to mean income was consistently modest by today’s measure. In all anglophone countries the ratio has about doubled. The excessive financialisation from the 1980’s, 1990’s seems to be a common factor, such that the banking system in places like Australia floats on bloated property prices. Even the GFC cause and effect was/is largely excessive real estate prices relative to prior history. In part, high levels of net immigration help underwrite the property fizz. To go back to a more sane property market would probably tank the economy. The political class will probably keep kicking the can down the road, anything other requires a degree of intelligence not obviously manifest in our current crop of pollies.
There are several reasons why housing prices are so high:
Subsidizing 30-year fixed rate loans
Low down payments
Zero interest rate policy after 2008 crash
Regulations that discourage suburban development
I think you forgot massively increased demand ..
And family breakdown (Mum and two children in one dwelling, father in another), expansion of higher education (more people going away to university so having, in effect, ‘two homes’)
Consider that the average American home was nearly 1000 sq ft smaller than today. Than factor inspections, restrictions, regulations required and bingo, costs are up.
Progressives favor a lot of policies that make housing more expensive, such as
Immigration
Inconvenience on car usage, which make inhabiting downotwn much more necesary
Immigration
Extra green regulation preventing the building of new homesImmigration
Urban lifestyle(see the recent euro vote result to know where progressives hide) which increases the cost of housing…
So yes, proggies are to blame for housign costs. Even though Tories are not blameless.
Viewing the housing market as a political, ideological contest is only obscuring the issue.
It’s personal. Those who own high-end real estate see their wealth grow like mushrooms; everyone else, renters and people who own houses in less vaunted neighborhoods, struggles. (Especially the renters because their rents are paying the mortgages and taxes.)
I saw my own family divide along these lines. The two sides don’t even speak anymore. The wealthy ones feel incredibly entitled and they can’t seem to talk about anything but real estate and travel. The rest of us have lives to live. We’re not interested in Sardinia or safaris in Namibia.
The real estate wealthy do whatever they can to grab more wealth. Since the politicians are all in that class it’s easy to add one loop-hole after another and more tax breaks every year for Christmas.
All of this monkey-shines has made Adam Smith’s law of supply and demand ridiculously outdated. That’s why “Build, build, build!” (like in Brklyn, where I live) never brings the prices down; it’s not really meant to. It’s a version of what we used to call a “gypsy switch”.
The Western housing market is a Ponzi, produced by monetary policy. Especially quantitative easing has been a disaster.
What we have done is push huge amounts of free money and cheap credit into the asset economy and not the real economy. This gives the Incentive to sell existing houses to each for more and more debt. The problem with such a Ponzi scheme is that you need to maintain scarcity, you can do this with a unlimited amount of excuses and NIMBY tactics. But the results are obvious: widespread homelessness and despair.